trade services utility (tsu) bank payment obligation (bpo) · new tsu/bpo settlement service with...
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Trade Services Utility (TSU) Bank Payment Obligation (BPO)
Case Study – First Forfaiting on TSU/BPO in the world
Vale International S.A.
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
SWIFT
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Copyright (c) 2013 The Bank of Tokyo-Mitsubishi UFJ, Ltd. All rights reserved
Vale’s Challenges and Benefits
Company Profile
2012 Revenues of USD 46.5 billion
Main product Iron ore (68.2%)
Approximately 100 clients worldwide (Iron Ore)
Main market is China (34%)
Challenges
Competitive commodities market requires a secure and cheaper alternative to L/Cs
L/Cs at sight for USD 18 billion with Chinese clients
DSO (Days Sales Outstanding) is between 25 and 30 days
Key Benefits
Reduce the DSO by approx. 10 days (including internal processes efficiency gains) with a financial gain over USD 37 million/year
Freeing up Working Capital – USD 600 million
Reduce costs for customers
Reduce document delivery costs
Reduce the risk of discrepancies
Improve access to Trade Financing products to our customers
Reduced environmental impact - reducing paper usage in extra copies of the shipping documents for the banks
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Copyright (c) 2013 The Bank of Tokyo-Mitsubishi UFJ, Ltd. All rights reserved
BTMU’s Challenges and Benefits
BTMU’s Strengths
Largest global network of any Japanese financial group
Strong credit rating
Pioneer for the TSU/BPO business in Japan and across Asia
Winning new clients in new markets: BTMU can offer TSU-based services as a new non-traditional trade settlement service
New opportunity to provide trade & supply chain finance services
Challenges
Maintain the trade business
Provide a new range of solutions to service the open account market
Provide more process efficiency, but without losing the business information
Key Benefits
Open door to new business opportunities
Provide quicker Account Receivable / Payable
Provide easier and faster operations
Meet the market requirement for banks to collaborate more on risk and client on-boarding
No original documents handling, no paper checking. Automated solutions
Better efficiency in operation. Easier and faster operation for banks
Reduce costs of document handling
Reduce costs for skilled human resources
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Copyright (c) 2013 The Bank of Tokyo-Mitsubishi UFJ, Ltd. All rights reserved
Case Study : First FFT on TSU/BPO in the world
In July 2013, The Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU) arranged a new TSU/BPO settlement service with Vale International S.A. (Vale)
BTMU is the first bank in the world to provide “Forfaiting (FFT)” on TSU/BPO: upon seller’s request, the bank purchases an export receivable (Open Account) with BPO at a discount with no recourse to the seller
BTMU Singapore branch executed FFT on the same day of TSU/BPO data matching with BTMU Bangkok branch through TSU system, which was all completed on the same day Vale presented the dataset information
Vale saved approx. 10 days and gained from increased safety, operational streamlining & cost reduction
① Sales
contract
Supplier (Exporter)
LC Advising Bank
(Exporter’s BK)
Buyer (Importer)
L/C Issuing Bank
(Importer’s BK)
⑤ Export doc
⑦ Assignment of A/R (NR: Non-Recourse)
⑧ Discounted payment (Principal – interest)
④ Export goods
⑥→ Notice of acceptance
⑨ Settlement of fund on due date
③ L/C open
③‘ Notice of L/C opening
② L/C application
Normal L/C FFT FFT on TSU/BPO
①
Purchase
Order
(P/O)
Vale Int’l (Exporter)
BTMU SGP
Buyer (Importer)
BTMU BKK
② P/O data
④ Shipping data
⑥ Notify matching result
④
Export goods
& Dispatch
shipping doc
(Original)
② P/O data
③ Input P/O data
⑦ Notify matching result
⑩ Settlement of fund
on due date
TSU
system
③ Check P/O data ⑤ Input shipping data
⑧ Assignment of A/R (NR) (After data matching)
⑨ Discounted payment (Principal – interest)
⑤
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Copyright (c) 2013 The Bank of Tokyo-Mitsubishi UFJ, Ltd. All rights reserved
Subject Description
Main function
Importer’s Bank guarantees the payment of the importer
Exporter’s Bank purchases export receivable (Open Account) with BPO at discount, non-recourse to the seller (exporter) , upon seller’s request
FFT Trigger
Successful data matching on SWIFT TSU system according to the baseline agreed between all the parties
Type of risk to mitigate Buyer’s credit risk and insufficient fund risk, payment delay risk
Type of BPO Obligation Primary Obligation
Documents Originals are exchanged between importer and exporter
Rules ICC URBPO (Uniform Rules for Bank Payment Obligation)
Fees Similar as L/C FFT
Remarks Wording of “BPO” is mentioned in P/O as the payment method for settlement safety
Key Features of FFT on TSU/BPO
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Copyright (c) 2013 The Bank of Tokyo-Mitsubishi UFJ, Ltd. All rights reserved
1st Stage: BTMU makes presentation to Vale and Vale expresses interest
2nd Stage: BTMU and Vale co-work to ask importers to introduce TSU/BPO
Brazil, SGP
Tokyo
BKK
Tokyo
Importer
Presentation to Vale
Internal Discussion
Soft Working Mandate
Discuss Appropriate Transaction
for shifting TSU/BPO
Instruction to make presentation to importer Presentation
Internal Discussion
TSU/BPO Contract
Discussion between Exporter and Importer supported by BTMU
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BTMU’s Set-up for Live Usage
TSU/BPO Contract 10
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Copyright (c) 2013 The Bank of Tokyo-Mitsubishi UFJ, Ltd. All rights reserved
Correspondent banking contract
Contracts and URBPO
Seller’s bank
in Singapore
Buyer’s bank
In Thailand
Buyer
Purchase order:
BPO is one option of payment conditions
TSU Payment
Service Agreement
BPO Agreement
URBPO
adopted by ICC
TSU
TSU Payment
Service Agreement
BPO Agreement
No additional bilateral
agreement is required
Seller / Exporter
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Copyright (c) 2013 The Bank of Tokyo-Mitsubishi UFJ, Ltd. All rights reserved
Buenos Aires
Sao Paulo
Beijing
Shanghai Guangzhou
Hong Kong
Jakarta
Tokyo
Kuala Lumpur
Singapore
Bangkok
Taipei
Santiago
Live Ready Testing
Sydney
Manila
BTMU’s Global TSU/BPO Network
BTMU Locations Offering TSU/BPO (As of July2013)
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Copyright (c) 2013 The Bank of Tokyo-Mitsubishi UFJ, Ltd. All rights reserved
Increasing & diversifying trade with emerging countries
Sophistication of trade control demands (Operational streamlining, Safety and early settlement, Cost reduction )
Increasing trade risk & workload of trade operation
Why TSU/BPO now ?
Reduce number of L/C transactions
Accelerate A/R reconciliation
Reduce settlement period to support suppliers’ working capital needs
Use a trade portal with end-to-end service
To improve visibility and traceability on trade control
Importer
Demands
Reduce number of L/C transactions
Reduce costs related to L/C (e.f. discrepancy fees)
Reduce document handling operations for D/A and for export bills for collection
Use a trade portal with end-to-end service
To improve visibility and traceability on trade control
Exporter
Demands
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Copyright (c) 2013 The Bank of Tokyo-Mitsubishi UFJ, Ltd. All rights reserved
#1 : Operational Streamlining
Customers’ Benefit #1
Easy procedure for BPO issuing
Reduce operational burden of treating complicated L/C and trade documents
Smooth reconciliation of payment & A/P (Account Payable) through prompt import data receipt
Increase possibility of earlier taking import goods
Increase chance of enhancing better relationship with exporter by diversifying settlement method
Importers’
Benefit
Decrease shipping documents presented to banks in traditional documentary settlement
Reduce operational burden of creating draft and shipping documents
Reduce discrepancy workload
The bank bears responsibility for any oversights
Reduce workload and operation time for documents checking
Mitigate risk of importer cancelling order or changing order
Exporters’
Benefit
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Copyright (c) 2013 The Bank of Tokyo-Mitsubishi UFJ, Ltd. All rights reserved
#2 : Safety and Early Settlement
Customers’ Benefit #2
Safer than open account payment
Improve traceability (Importer could make payment after confirming import goods data)
Decrease discrepancies arose from importers’ operation for early L/C issuing
→ Early Settlement (Importer could issue BPO just after having P/O with exporter on TSU settlement)
Importers’
Benefit
Increase possibility of early fund collection
Improve traceability (Exporter could ask importer clearly to execute payment after confirming data matching or acceptance of data mismatching by importer)
Speedy settlement by decreasing discrepancies (Data matching point is limited on TSU in compare with traditional documents checking)
In case of BPO, the credit risk is transferred from importer to the obligor bank
Exporters’
Benefit
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Copyright (c) 2013 The Bank of Tokyo-Mitsubishi UFJ, Ltd. All rights reserved
#3 : Cost Reduction
Customers’ Benefit #3
Decrease inter-office cost through import operational streamlining
Increase possibility to decrease banking charge (e.f. L/G, T/R) to receive import goods
Importer could have chance to negotiate better terms and conditions through early settlement
Decrease import financing cost by effective usage of import credit facility
Importers’
Benefit
Decrease inter-office cost through export operational streamlining
Reducing the DSO (Days Sales Outstanding) and freeing up working capital through early fund collection
Chance to decrease various banking charge like discrepancy fee, L/C advising charge, postage etc
Reduce finance cost by using BPO related trade financing
Exporters’
Benefit
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Copyright (c) 2013 The Bank of Tokyo-Mitsubishi UFJ, Ltd. All rights reserved
BTMU operational flows for the TSU/BPO
IMPORTER IMPORT BANK EXPORT BANK EXPORTERTSU
P/O
Copy
MATCHING
MatchedContract Data
MATCHING
DataInput
DataInput
TSUAppli-
cation
P/O
Copy
TSUAppli-
cation TSUApplication
TSUApplication
Shipment
Ship Doc
Copies
BillsBought
Appli-
cationShippingDocument
Matching Result(Shipping Info)
Matching Result(Shipping Info)
Operation forBills Bought(withBPO)
MatchingResult
MatchingResult
ReceiveFunds
MatchingResult
Dataresubmiss-ion on TSU
3
Operation forsettlment ofBills Bought
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5
Operation for B/R(Bills for receivable)Arrival
6
Operation forSettlement ofImport B/R
7
Arrival Notice
Payment/settlement
Matching Result(Contract Info)
Data Inputon TSU
Matching Result(Contract Info)
BPO Advice
1
BPO issuanceoperation (utlizeLC framework)
2
BPO balancedeductOperation
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Data Inputfor TSU
4
Match/Accept
BPO
Ship Doc
Originals
Original documents to be sent directly from Exporter to Importer
MatchingResult
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Copyright (c) 2013 The Bank of Tokyo-Mitsubishi UFJ, Ltd. All rights reserved
Export Bank ExporterImporter Import Bank
SWIFT
LCADV.
SendMT70X
Imp DocArrival
LC Apply
ShipArrangement
PresentShip Doc
Order forsettlement
Credit forBills forCollection
SettlementOperation
ReceivePayment
DocumentDelivery
Credit
LCAppl
BL&INV
B/CAppl
PurchaseOrderTrade Contract
LC ADVICE
Prepare LCApplication
PrepareShip Doc
ReceiveImportDoc
ImpDoc
Release
SendMT40X& 20X
Imp ArrivalAdvice
ImpDoc
Receive
DocChecking
DocChecking
Receive
MT70X
ReceiveMT40X& 20X
Trade Contract
DispatchExportDoc
EXPORTER
Notice Notice
Notice NoticeArrival
IMPORTER Importer's Bank Exporter's Bank
ShippingDocument
TSU
P/O
Copy
MATCHING
Matching Result(Contract Info)
MatchedContract Data
MATCHING
DataInput
DataInput
DataInput
TSU
Appli-
cation
P/O
Copy
TSU
Appli-
cation TSUApplication
TSUApplication
Shipment
Ship Doc
Copy
B/C
Appli-
cation
Matching Result(Contract Info)
Matching Result(Shipping Info)
Matching Result(Shipping Info)
Present Copy
Automatic Payment(Import Settlement without L/C)
MatchingResult
MatchingResult
MatchingResult
ReceivePayment
MatchingResult
PurchaseOrderTrade Contract Trade Contract
Operation forReceiving the
Payment
SettlementOperation
Flow chart of A/S L/C Flow chart of TSU
Vale saved approx. 10 days and gained from increased safety, operational streamlining & cost reduction
Comparing the Flows
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Copyright (c) 2013 The Bank of Tokyo-Mitsubishi UFJ, Ltd. All rights reserved
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